Slowing U.K. Mortgage Applications to Stoke Larger GBP/USD Pullback

- U.K. Mortgage Applications to Slow to Annualized 61.9K in July- Lowest Since March 2015.

- M4 Money Supply Grew 3.5% in June- Fastest Pace of Growth Since 2010.

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Trading the News: U.K. Mortgage Applications

GBP/USD may continue to give back the rebound from the August low (1.2864) as U.K. Mortgage Applications are anticipated to narrow for the second consecutive month in July, with current market forecast calling for an annualized reading of 61.9K.

What’s Expected:

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Why Is This Event Important:

Signs of weaker growth are likely to push the Bank of England (BoE) to further embark on its reestablished easing cycle as ‘a majority of members expect to support a further cut in Bank Rate to its effective lower bound,’ but it seems as though the central bank will avoid following the path of its European counterparts especially as Governor Mark Carney rules out a zero-interest rate policy (ZIRP) for the U.K.

Expectations: Bearish Argument/Scenario

The slowdown in building activity accompanied by easing home prices may drag on private-sector lending, and a dismal development may spark a bearish reaction in the British Pound as it fuels expectations for additional monetary support.

Risk: Bullish Argument/Scenario

Nevertheless, the pickup in business investment paired with the expansion in household spending may boost lending, and a better-than-expected print may prop up the sterling as it dampens the risk for a recession in the U.K.

How To Trade This Event Risk(Video)

Bearish GBP Trade: U.K. Mortgage Applications Slows to 61.9K

• Need red, five-minute candle following the print to consider a short GBP/USD trade.
• If market reaction favors short sterling, sell GBP/USD with two separate position.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit, set reasonable limit.

Bullish GBP Trade: Private-Sector Lending Beats Market Expectations

• Need green, five-minute candle to favor a long GBP/USD trade.
• Implement same setup as the bearish British Pound trade, just in the opposite direction.

Potential Price Targets For The Release

GBP/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• The failed attempt to test the monthly opening range may generate a larger pullback in GBP/USD especially as the pair appears to be stuck within a wedge/triangle formation; may see the long-term bearish trend reassert itself once the Relative Strength Index (RSI) breaks the bullish formation carried over from the previous month.
• Key Resistance: 1.4880 (50% retracement) to 1.4930 (38.2% expansion)
• Key Support: 1.2450 (61.8% expansion) to 1.2500 pivot

Check out the short-term technical levels that matter for GBP/JPYheading into the report!

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Impact that the U.K. Mortgage Applications has had on GBP during the last release

June 2016 U.K. Mortgage Applications

GBP/USD 5-Minute

U.K Mortgage Approvals narrowed to an annualized 64.8K in June from a revised 66.7K the month prior to mark the lowest reading since May 2015, while the M4 Money Supply increased an annualized 3.5% during the same period to mark the fastest pace of growth since February 2010. With the economic outlook mired by ‘Brexit,’ the Bank of England (BoE) is widely anticipated to reestablish its easing cycle in an effort to combat the downside risks surrounding the U.K. economy, but the central bank may be careful in managing market expectations as Governor Mark Carney sees a risk of overshooting the 2% inflation-target over the policy horizon. GBP/USD traded marginally lower following the data print, but the British Pound regained its footing during the North American trade to end the day at 1.3222.

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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